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ARE FINANCIAL SECTOR POLICIES EFFECTIVE IN DEEPENING THE MALAYSIAN FINANCIAL SYSTEM?
Author(s) -
ANG JAMES B.
Publication year - 2008
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2008.00110.x
Subject(s) - financial deepening , market liquidity , interest rate , economics , financial sector development , financial system , finance , order (exchange) , financial analysis , financial intermediary , indirect finance , financial instrument , financial sector , business , financial ratio
This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959–2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls, and capital liquidity requirements positively affect the level of financial development. However, greater trade openness, higher statutory reserve requirements, and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development. ( JEL E44, E58, O16, O53)